An income tax return is a document that contains information about a taxpayer’s income, tax liability, deductions, and exemptions for a specific fiscal year. Filing an ITR has various purposes, the primary one being to claim tax deductions.
This article provides a comprehensive understanding of the significance of ITR and addresses any uncertainties taxpayers may have. The guide will elaborate on the advantages of filing an ITR. In addition, it will also highlight the potential consequences of not doing it. Check out these major benefits of filing income tax returns.
When an individual plans to travel abroad, immigration authorities request tax return copies. The filing of taxes returns ensures the smooth processing of VISA documents. It makes immigration authorities view the individual as tax compliant.
These documents help embassies determine whether the person can bear the travel expenses. It allows them to assess if they can return to India. Typically, ITR copies from the last 2-3 years are considered.
This is undoubtedly a major benefit of filing an ITR. Instances exist where tax is deducted from an individual’s salary even if their income is not taxable. For example, suppose a person earns less than Rs. 2.5 lakhs annually. Now, in a given financial year, they received Rs. 2 lakhs from a bank fixed deposit account. The bank, when disbursing the amount, will deduct a 10% TDS. Clearly, the person ended up paying tax when their tax liability was NIL. This excess tax can be availed only when they file for IT Returns.
By filing an ITR, individuals can get tax refunds directly to their KYC-compliant bank accounts.
The third primary benefit of filing income tax returns is that it helps people secure loans. When a person applies for a loan, banks request different documents. These include, among other things, the applicant’s income proof. This is done to verify whether the applicant is financially capable to repay the loan. In addition, ITR helps not only when one applies for a loan, but also with credit card applications.
Another vital ITR benefit is that it helps avoid scrutiny from the income tax department. Non-filing of returns may attract thorough scrutiny. The income tax department will typically assess the person’s financial records. If discrepancies are found, they might initiate legal action.
Individuals may experience losses from capital gains or business during a financial year. To claim certain specified losses, the person must mandatorily file tax returns within the due date. ITR helps people claim losses carried forward in the future. In addition, it also acts as a document to track those losses to be claimed in the future. For instance, suppose a taxpayer makes a profit from the sale of equity shares or mutual funds. Filing ITR will enable them to adjust these profits against losses incurred in the past.
Different educational institutes see ITR as vital income documentation for claiming certain scholarships. In this case, ITR helps in establishing the student’s financial circumstances.
Prospective startup founders seek investments from venture capitalists and seed investors. These investors may ask for copies of the ITR to evaluate the financial stability of the business.
For self-employed individuals, who do not receive Form 16, ITR receipts are particularly important. This is true if their annual income exceeds the basic exemption limit of Rs 2.50 lakhs. In this case, ITR is typically the only proof that demonstrates that they filed for taxes.
Filing income tax returns (ITR) has numerous benefits. From smooth visa processing to securing loans or claiming tax refunds – there are many pros. However, note that failing to file returns on time also has several repercussions. Firstly, the Income Tax Department may issue a notice. Secondly, it may impose a fine if ITR is filed after the deadline. Typically, if one’s income exceeds Rs. 5 lakhs, a penalty of Rs. 10,000 is levied. Only seniors above the age of 75 can receive a full exemption from filing returns.
So, pay your taxes and file for ITR on time!
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